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Should Fully Guaranteed Contracts Go for Good?

In one of the threads in the immediate aftermath of last week, I pointed out that one of the biggest difficulties that the front office faced in dealing with this debacle was the timing. There’s just not a lot of available options for a club that stages a September swoon. However, I think that lost in that argument was another major issue—it was touched upon a few times, but its significance in the downfall of the Sox maybe didn’t get the full attention it deserved.

For the casual visitors, and those looking to know a bit more about baseball contracts: a major difference between MLB and the other major professional sports is that free agents have much more control over their contracts and career than in the other sports. While this certainly works to protect the players to an extent, it also can make the job of management a lot tougher. The rules are sufficiently weighted in favor of the players that a free agent cannot be sent down to the minors without his consent. If a player refuses a minor league designation, the team’s only options are to retain the player on the 25-man roster, or to release him. In the case of a release, the full salary specified in the contract must still be paid. The only way to be released from the contract is if the player breaks the contract (through retirement or violating other clauses). However, the number of times this has actually happened is relatively small—and I certainly can’t remember hearing about it.

Now, how do we put this into context for last month’s disaster? Well, to deal with problems in September is very challenging. There’s very little that can be done. Trade rules make it very difficult to bring in new blood that far into a season (and also remember that they’d also be ineligible for the playoffs, even if they were to impact the regular season race). You could try to solve the problem by eliminating a "cancer," if you were able to identify the specific player to let go, and were willing to absorb the remainder of their contract. They’ve already gotten most of their money due for the year, and you’d be left holding the bag for essentially the full amount remaining to be paid on the contract. (Remember, other teams can sign a released player for the league minimum, and the original team is responsible for the remainder of the contract.)

We, of course, have seen the Sox use the power of designation for assignment (DFA) with players with substantial time remaining on their contract. The names Julio Lugo and Edgar Renteria come immediately to mind in thinking about the million the Sox have shelled out in contractually obligated payments for players no longer on the roster. However, Lugo was dispatched mid-season—well before the trade deadline—and Renteria was dealt in a trade, with the Sox responsible for very little of his actual salary. In addition, these players were released for poor performance on the field (in addition to whatever issues they may or may not have had in the clubhouse).

There is, of course, another reason to want to rid yourself of a contract that has nothing to do with on-field performance. Exhibit A for the Red Sox in this category being one Manuel Aristides Ramirez. Nobody should question that Ramirez was a brilliant baseball player. Equally, nobody should question that Ramirez’s antics and demands made things very difficult for the management. A player with Ramirez’s statistics should not, under normal circumstances, be placed on waivers on an annual basis. With the waiver system, the Red Sox were essentially looking for someone to pick up his contract—they didn’t even have to negotiate an offer for a trade. Had another team been willing to shoulder the salary burden or entertain a trade, I don’t doubt that Ramirez would have been gone long before the 2008 trade for Jason Bay, and probably even before his 2007 heroics.

Ultimately, no one ever pulled the trigger. Not one team was willing to absorb his $20 million price tag. Why not? Well, for many of the same reasons the Sox were stuck: the contract was fully guaranteed, and therefore nobody wanted to be the one to take on a "problem case." Sure, you could get $20 million in production (and perhaps then some), but you’d also be taking on a very expensive headache as well. The McCourts were willing ultimately to make a trade, but only because Boston was willing to eat Ramirez’s salary for the remainder of the 2008 season. Without that concession—without being responsible for paying for Ramirez—there wasn’t a deal to be had.

So, the most powerful tool that teams in other sports have to deal with cantankerous clubhouses—the power of the paycheck—has been essentially gutted in baseball. As I said above, this definitely protects players from capricious management decisions, and prevents teams from taking advantage of players. However, when a contract is fully guaranteed, there’s only internal motivation left to ensure that the player lives up to his contract. When a player doesn’t make that effort, what tools are left at a GM’s disposal? You can cut the player, but that’s a potentially budget-breaking way to deal with the problem, particularly if you think you can get some return for the investment in the future.

All that said, what do I think should happen to the system? Well, I’d certainly get rid of the fully guaranteed contract. Note—I don’t think that there should be no guarantees, either. I think there needs to be a balance: a portion, maybe half or more, that is fully guaranteed, with the other half payable when a player completes the season on a team’s roster without incident, and with potential incentives and penalties as appropriate. To avoid teams promising contracts they have no intent on delivering, you’d "tax" teams based on the incentivized contract, rather than the guarantee.

I think such a strategy, in which players will see most of the money they’re promised, but have to be productive and cooperative to earn the full amount, strikes a reasonable balance between recognizing and rewarding past performance, while allowing for some control and levers over future behavior.